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Foundations of Financial Planning :

Overview & Process

STC Chennaimetro
Financial Planning

It is a plan for future needs, for meeting


contingencies and for regular inflow of
money when we do not have regular income
or require additional income, by savings or
investment during working life.
Life Cycle Stages
Childhood

Youth

Old age Middle age


Stages In Economic Life

• Preparation for entry into the work force (Education)

• Productive economic life (Employment)

• Post retirement life (Elderly Life)


SAVE FIRST SPEND NEXT

Normal way of savings for future

Earn  Spend  Save  philosophy

Best Practice should be

Earn  Save  Spend  philosophy


Why Save ?

• Satisfying Life Cycle Needs.

• For Financial Planning.


Financial Needs
1. Contingency Fund.
2. Education of Children.
3. Living – Food, Cloth & shelter.
4. Marriage of Children.
5. Recreational Expenses.
6. Purchase of vehicle.
7. Owning a house.
8. Start in life for children
9. Medical Expenses.
10. Festival Expenses
11. Wealth Creation for next generation.
12. Gift.
13. Jewelry.
14. Recreational Expenses.
15. World Tour.
16. Pension.
17. Maintaining New Style of Life.
18. Clearing Debts.
19. Last rites..
20. Caring of parents
21. Repairs & maintenance
22. Salary to servants
23. Donations
24. --------------
Financial planning
What is Financial planning?
Financial planning is the process of achieving goals and
objectives through proper management of income.
Steps for Financial Planning.
1.Understanding Financial Needs.
2.Determine where you are now.
3.Decide Where you want to reach.
4.Decide your goals and objectives.
5.Develop appropriate Investment Strategy.
Basics of Financial Planning

• Income (Revenue)
• Needs (Expense)

• Willingness to take risk (Investment)


• Capacity to pay (Disposable Income)
Financial Needs

Financial Needs depend upon


1.Life Cycle Stages.
2.Family Situations.
3.Health.
4.Income and Status. (Life Style)
5.Emotional Needs. (Unforeseen contingencies)
Earning & spending years in
life
Earning Years & Spending Years in Life
• Living Years in Life – 80

• Earning Years in Life – 35

• Spending Years in Life – 55

Need to Save – for Emergencies

Need to Insure – Against uncertainties

Need to Invest – For Wealth Creation

8
PRIORITY OF PEOPLE

People in general have Little


Knowledge of prioritization of their
needs
Most People Prioritize Investments This
Way
Land, Property, Gold

Fixed Deposits, Small Savings

Mutual Funds,
Bonds & Shares

Decreasing Priority Life


Insurance
Whereas The Priority Should Be
Protection :
Life Insurance against unpredictable events

Liquidity:
Fixed Deposits, Small Savings

Mutual Funds,
Bonds & Shares

Decreasing Priority Land,


Property
Gold
Abraham
Maslow
Key Messages to Use in Advertising Campaigns
Maslow’s Hierarchy of Needs
Self-Actualization

Wants:
-Perceived as important to
Esteem satisfy ego
-Sell “greed” – Show them
Social how your product will
enhance their lives, get them
more they require.
Safety Needs:
-Perceived as necessary to survival
Physiological
-Sell “fear” – Show them how your product will avoid a
loss or reduce their pain
Life Insurance-
It can be used for a number of needs —
including
family protection,
business planning,
supplemental income and
estate and charitable planning.
LIC

We have plans for all


Stages of life
Advantages of life insurance policy.

• 1.It creates an estate.


• 2.It encourages thrift.
• 3.Can be used as a gift to near or dear
• 4.Can be used as a collateral security for housing loan.
• 5.Can be assigned as security for loan. Transfer of property through life
insurance policy does not attract any stamp duty.
• 6.The proceeds are not liable for income tax.
• 7.Settlement of claim under insurance policy is very simple.
• 8.Safe investment as it is governed by IRDA regulations.
• 9.Life insurance policies are available from very short to very long
duration.
• 10 .Economically weaker sections can also benefit through Group
Insurance Schemes of the GOVT.
• 11. Funds generated by insurance companies are utilized for
infrastructure development in the country.
HUMAN LIFE VALUE

Solomon S. Huebner’s work was focused on


the advancement of insurance education.
Miles M Dawson states: Solomon S.
“ There is nothing more uncertain than life and nothing more certain Huebner
than
LIFE INSURANCE.”

A person has to play many roles and each role entails different emotions.
When the person is not there, he leaves a vacuum, this vacuum is both
EMOTIONAL as well as ECONOMIC
E.g.. – the vacuum of a husband for a wife can not be replaced
similarly the vacuum of a father can not be made good by another person
.
WHAT IS HLV?
Each person’s worth can be measured economically as
he is an Estate for the family. ( HLV )
The vacuum of economic needs created by the absence of the
bread winner can be made good through the concept of life
insurance but emotional gap will exist forever.
“Human Life Value” is that amount which ensures that the
standard of living of a family is not affected even if the earning
member is not there or not able to earn.
With the increase in earnings & Price rise (Inflation) the HLV of
bread-winner goes up and the necessity to review and increase
Life Insurance Cover arises.
OBJECT OF LIFE
INSURANCE

• Bread winner dies, Bread must continue – it can


be further expanded to say that family should be
able to live in the same way as if bread-winner
were alive.
Steps to calculate HLV
Annual Earning Method
1. Estimate present gross annual earnings
2. Identify deductions
3. Arrive at net annual earnings
4. Estimate amount for self maintenance
5. Net contribution to family (3 – 4)
6. Add to (5) average future increase in annual earnings
over remaining work span
Calculation of HLV
• For Example: If a person is likely to earn Rs.7 Lakhs p.a. for the rest
of his working life and is likely to spend 40% on himself and to pay
tax, to go to work etc.,
• The family’s financial benefit for the individual is Rs.7,00,000 –
2,80,000 = Rs. 4,20,000.
• In the event of absence of the bread winner, the family stands to lose
Rs. 4,20,000 and more when inflation rate goes up.
• He must make provision which will yield Rs.4.2 Lakhs p.a. at existing
bank rate ie., 7%
Formula for calculation of HLV

• Indispensable Income X100 = HLV


Rate of Interest

4,20,000 x 100 = 60 Lakhs


7
Fixing Needs with Insurance and Investment

These are a few examples.


You may suggest any number of
such packages to your clients based
on their financial needs and
amount available for investment.
Sl No   Plan &  
AGE 25
  BENEFITS  
T
e
r
m
Name of the plan Premium Risk SA Maturity SA Bonus FAB Remarks

1 Whole Life 5-15 7,075 2,00,000 2,00,000 5,51,100 6,40,000

2 Jeevan Tarang 178-20 10,044 2,00,000 2,00,000 1,92,000 30,000 (LA)

3 Market Plus- I 191-20 5,000 1,00,000 4,00,000 *    

4 Jeevan Chaya 103-20 4,428 1,00,000 1,00,000    

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000    

6 Amulya Jeevan 190-35 7,350 25,00,000 NIL    

7 Jeevan Mitra 133-30 7,608 6,00,000 2,00,000    

8 Health Protection + 902 6,000        

               

      69,135 41,00,000 12,25,000      


AGE 30 YEARS
Sl No   Plan &        
Term
Name of the plan Premium Risk SA BENEFITS Remarks

      Maturity SA Bonus FAB  

1 Whole Life 5-15 7,899 2,00,000 2,00,000 5,55,600 6,40,000 2778 + 3200

2 Jeevan Tarang 178-20 10,044 2,00,000 2,00,000 1,92,000 32,000 48

3 Market Plus- I 191-20 5,000 1,00,000 1,00,000     NAV 13.5 EXPC GR


30

4 Jeevan Chaya 103-20 5,490 2,00,000 2,00,000     LA 150

5 Jeevan Anand 149-21 10,690 2,00,000 2,00,000     45

6 Amulya Jeevan 190-30 8,400 25,00,000 NIL     --

7 Jeevan Mitra 133-30 8,627 6,00,000 2,00,000     50

8 Health Protection + 902 10,000          

               

      69,135 41,00,000 12,25,000      


AGE 35
Sl No   Plan &        
Ter
Name of the plan m Premium Risk SA BENEFITS Remarks

      Maturity SA Bonus FAB  

1 Whole Life 5-15 8,889 2,00,000 2,00,000 5,39,300 6,40,000 2696.50 + 3200

2 Jeevan Tarang 178-20 10,044 2,00,000 2,00,000 1,92,000 30,000 48

3 Market Plus- I 191-20 5,000 1,00,000 1,00,000     NAV 13.5 EXPC GR


30

4 Jeevan Chaya 103-20 11,372 2,00,000 2,00,000     LA 150

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000     45

6 Amulya Jeevan 190-25 9,925 25,00,000 NIL     --

7 Jeevan Mitra 133-30 10,266 6,00,000 2,00,000     50

8 Health Protection + 902 6,000          

               

      69,135 41,00,000 12,25,000      


AGE 40
Sl No   Plan &        
T
Name of the plan e Premiu Risk SA BENEFITS Remarks
r m
  m     Maturity SA Bonus FAB  

1 Whole Life 5-15 10,082 2,00,000 2,00,000 5,16,500 6,40,000 2582.50 + 3200

2 Jeevan Tarang 178-20 10,044 2,00,000 2,00,000 1,92,000 30,000 48

3 Market Plus- I 191-20 5,000 1,00,000 Fund Value     NAV 13.5 EXPC GR
30

4 Jeevan Chaya 103-20 11,372 2,00,000 2,00,000     LA 150

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000     45

6 Amulya Jeevan 190-25 9,925 25,00,000 NIL     --

7 Jeevan Mitra 133-30 10,266 6,00,000 2,00,000     50

8 Health Protection 902 6,000          


+
               

      69,135 41,00,000 12,25,000      


Allocation of funds for Insurance and
Investment
10% OF THE GROSS ANNUAL INCOME =
7,00,000X 10% = Rs.70,000.

20% OF THE INVESTIBLE FUND =


7,00,000X20%= Rs1,40,000.

10% 70,000 20% 1,40,000


Need for Financial Planner

 low appetite for career and finance risks

 Capital preservation was major concern.

 Only 10 % of Indians are covered by any form of


pension scheme .

 Less number of professional advisory planner or


investment advisor
Need for Financial Planner

 There is less effort to raise public awareness of the


importance of financial planning early on life and how
financial professional add value to protection of financial
protection.
How much surplus does an average
house hold generate ?

 20% of Income goes to Tax Department


 50% of Income goes to Banks as EMI (Car which is now replaced
every 5 years, 20 year housing loans, Other Consumer electronics
like Television, microwave, Mobilephone, washing machine, A/c,
Personal Computers, Vacuum cleaners all these have to be
replaced every 3-5 years)
 30% (This could also be higher which may lead to deficit) House
hold expenses (House maintenance, Electricity, Water, Gas, Fuel,
Grocery, Servant Maid, Telephone Bill, Cable Bill, Broad Band
Bill, Mobile bills)
 Credit Card Bills (For eating out, apparels, entertainment,
holidays ) - Rolled over and debts get accumulated
 So where is the surplus left for Life Insurance, Medical Insurance,
Investments ?
Generate Surplus

• If you want your client to buy insurance


polices or investment products, you now
need to generate surplus for them

• - First step in financial planning


How can you generate surplus ?

• Look at every financial decisions made by


your client
– Should be having so much loan?
– Is he paying the right amount of EMI for the loan?
– Is there a way reduce EMI burden ?
– How many of the financial decisions are rational
– Is he paying the right amount of tax ? Can the tax liability
be reduced further ?
– Is there a scope to reduce house hold expenses ?
– Where is the opportunity to reduce expenses without
compromising the quality of lifestyle?
Surplus Generation

There is no single solution – Each one of your


client will need a different solution to generate
surplus
- This where you can show your creativity and
build relationship with client.

..\..\My Documents\DispIncome.xls
Attempt to Generate Surplus

How many of you have attempted to generate


surplus for your client ?

How many of you have succeeded ?


Let us now understand financial literacy
Financial Literacy means :
 the ability to make informed and rational
(not emotional) decisions
 take effective actions regarding the current
and future use and management of money.
 Invest according to a goal measured in
terms of money such as saving for
retirement, fund for marriage etc.
 Get prepared for adverse events like salary
cut or job loss (current scenario)
Our future financial security lies in our
hand
Different financial decisions are:
 Budgeting
 Tax planning
 Insurance planning
 Managing credit wisely
 EMI and debt Management
 Savings for retirement
 Planning our own resources for short and
long term goals
So What Next, who is going to win the
trust of the customer ?

The real differentiator of


customer – centricity in a commoditised world
of financial products -
providing advise and helping clients to make
right financial decision
Financial Mathematics

Confidential
let’s understand how money
works better
So that we don’t get into debt trap
Learning Outcomes
• This session covers concepts related to Time Value of Money using
• MS-Excel. By the end of the course the participant should be able to:

• draw a timeline and plot cash flows on the same.


• understand the cash flow sign convention.
• identify the correct financial formula and input values into the same in
order to solve Time Value of Money (TVM) problems requiring
calculation of Present Value (PV), Future Value (FV), Rate (i), Number
of Compounding Periods (nper), Internal Rate of Return (IRR), Net
Present Value (NPV).

Confidential
Introduction to TVM Calculations
Using MS -Excel
TVM Terminology & Notations in MS Excel:

FV: Future Value


PV: Present Value
Rate: Rate of Return
PMT: Annuity payments or constant periodic cash flow.
NPER: Compounding Periods
NPV: Net Present Value
IRR: Internal Rate of Return
Type: Identifies timing of the payment. 0 or omitted if at the end and 1 if
at the beginning.
Time Value of Money (TVM)
• “The concept of Time Value of money is based on the premise that
• money available in the present time is worth more than the same
• amount in the future primarily due to its earning capacity in the future.”

• Some key assumptions in TVM:


• Money earns positive rate of return…
• Any amount of money is worth more the sooner it is received…
• Interest on Interest
So What Makes You Happy?
Option 1 Option 2

Rs. 1000 Rs. 1000


TODAY TOMORROW
Time Value of Money (TVM)…
Contd.
• For money to have Time Value it must be possible to invest it at a positive
rate of return.
• Compound Interest – Deeply embedded into TVM.
– Concept of Interest on Interest.
• TVM concepts most commonly used to calculate Present Value (PV) and
Future Value (FV) of an investment’s cash flows.
• TVM allows us to compare investment alternatives by measuring their cash
flows at some common point in time:
– At the end of the investment horizon FV is computed using a method called
Compounding.
– At the start of the investment horizon PV is computed using a method called
Discounting.
Introduction to Timeline
• What is a Timeline?
“A timeline is a graphical depiction of the cash flows in a time value of money
situation.”
Payment (PMT)
Present Future
Value (PV) 100 200 300 400 500 Value (FV)

Keep these in mind: 0 1 2 3 4 5

• Draw timeline for a TVM problem to identify the correct cash flow timing.
• End of one period is the beginning of another period.
• Use Discounting method to calculate PV and Compounding method for FV.
• Cash outflows (payments) are assigned a negative (-) sign while cash inflows
are assigned positive sign (+).

Confidential
Cash Flow Sign Convention
Excel Example:
• The Cash Flow Sign Convention signifies A bond pays a coupon of 20% annually with
the direction of the cash flow in a TVM interest paid quarterly. The bond’s duration
is five years. The Yield is 25%. Find its
problem. current price assuming Face Value of 1000.

• It uses positive and negative numbers for


cash inflows and outflows, respectively.
• Failure to adhere to the convention will
result in incorrect answers from the
spreadsheet.

Payment (PMT)
Present +/ - Future
Always use a Positive (+) sign for all
Value (PV) 100 200 300 400 500 Value (FV) cash Inflows and use a Negative (-)
+/- -/+ sign for all cash Outflows regardless of
0 1 2 3 4 5
their timing (PV or FV).

Confidential
Present Value (PV)
• “The current worth of future sum of money or stream of cash flows
• given a specified rate of return.”

FV
PV =
(1+RATE/N)NPER

Calculating PV in MS Excel:

=PV(rate, nper, pmt, [fv], [type])

Confidential
Solving for PV:
The concept
• Solve the general FV equation for PV:
– PV = FVn / ( 1 + i )n

Confidential
What is the present value (PV) of Rs.100 due in 3
years, if interest rate = 10%?
• Finding the PV of a cash flow or series of cash
flows when compound interest is applied is
called discounting (the reverse of compounding).
• The PV shows the value of cash flows in terms
of today’s purchasing power.

0 1 2 3
10%

PV = ? 100
Confidential
Future Value (FV)
• “The value of an asset or cash at a specified date in the future that
• is equivalent in value to a specified sum today”

FV = PV x (1+RATE/N)NPER

Calculating FV in MS Excel:

=FV(rate, nper, pmt, [pv], [type])

Confidential
Solving for FV:
The Concept
• After 1 year:
– FV1 = PV ( 1 + i )

– After 2 years:
• FV2 = PV ( 1 + i )2

– After 3 years:
• FV3 = PV ( 1 + i )3

– After n years (general case):


• FVn = PV ( 1 + i )n
Confidential
Illustration

Geeta invests Rs. 2000 at the end


of each month for 48 months.
Her rate of return is 8% p.a. The
investment’s value at the end of
the said period will amount to
___________.
Confidential
Always remember rule of 72!
Helps you to approximately calculate number years it takes
to double your money given the rate of interest..
Or
Helps you to calculate the interest rate required to double
your money given the number of years

Answer:
If interest rate is ‘r’ then it will require 72/r years to double
the money

Check out this few examples


Confidential
How many years will it take for
sum of Rs.10,000/= to become
Rs. 40,000/= assuming that the
amount is invested in a Bank
deposit paying 9% interest

Confidential
Apply rule of 72!

• Number of years to double the money


– “72/r” where r is the rate of interest
• Hence
– It will take 72/9 = 8 years for the money to
become 20,000
– And another 8 years for 20,000 to become
40,000
• So a total of 16 years @ 9% for Rs 10,000 to become
Rs 40,000
Confidential
What is the rate of interest offered
by National Savings certificate
which promises to offer double the
money in 8.5 years?

Confidential
Applying the rule of 72!

• Rate of Interest for doubling the money


– 72/n where n is number of years

– Hence rate of interest offered by NSC


• 72/8.5 = 8.47%

Confidential
If Ashish has been regularly investing
Rs.10,000 at the beginning of every year
for the past 10 years, into an investment
earning 10 % rate of return, what is the
value of the investment now?

These are the real life situations that


we face every day…

Confidential
What you should really know

• Be comfortable with following functions in


Spread Sheet or Financial Calculator
– PV, FV, PMT, NPV, Power, NPER, RATE
• Understand when to apply which function
• The mathematical concept behind these
function
Confidential
The First Thing you should do

• Draw a time line

Confidential
Time lines

0 1 2 3
i%

CF0 CF1 CF2 CF3

• Show the timing of cash flows.


• Tick marks occur at the end of periods, so Time
0 is today; Time 1 is the end of the first period
(year, month, etc.) or the beginning of the
second period.
Confidential
Drawing time lines: Example

Going back to the example

0 1 2
i%

10,000 at the beginning of every year for 10 years


100
can be represented as

0 1 9 10
i% =10%
Length of the period = 1 year

-10000 -10000 -10000 ?


Confidential
Components of Time line chart
• Beginning of period (mostly 0 marked by a tick)
• End of Period (10 years in this case)
• Rate of interest i=10%
• Length of the each period = 1 year
– Most important note: the interest rate first has to be normalised to the
duration of the period, for e.g if the length of period is semi-annual
then interest = (10/2) or 5% else if duration of the period is monthly
then interest rate has to be 10/12 or 0.833%
• Equal payments (out flow must be marked with -, and inflow must me
marked with +), in this case (-10,000)

Confidential
After drawing the timeline
• Understand what is to be computed
– Is it FV (Future Value)? (Value at the end of the last tick)
– Is it PV (Present Value) (Value at the beginning of the first tick)
– Is it PMT (equated payments) (value happening at every tick)
– Is it NPER (Periods required to create certain sum of money or
repay loan? (number of gaps between ticks)
– Is it rate (to find the rate of interest you are paying or receiving)?
(the interest rate normalised based on the length of the period)

Confidential
What is to be calculated?

10,000 at the beginning of every year for 10 years


can be represented as

0 1 9 10
i% =10%
Length of the period = 1 year

-10000 -10000 ?
Confidential
What is the future value (FV) of yearly investment of
Rs 10000 after 10 years invested at the beginning of
every year, if interest rate is = 10%?
• So, what we need to find is FV…
– What we have is
• PV = which is payment at the beginning of the period 0
• NPER = 10 (10 years)
• Rate = 10%
• PMT = -10000 (equal payments going out of pocket at every
tick)
• Note: here we need to understand “Type” which is nothing but
if the outflow or inflow is happening at beginning of the
period is “1” and inflow or out flow happening at end of the
period is “0” Confidential
Solving for FV
• Using the XL Spread Sheet
– Use ‘FV’ function
– rate = 10%
– nper = 10
– Pmt = -1000
– PV = 0
– Type = 1 (since it is in the beginning of the period)
• Ans: Rs 175,310

Confidential
Let’s solve
• Steps involved
– Draw the time line
– How many ticks ?
• 49 ticks – 0 to 48 (This is nothing but NPER)
– Value at the beginning of the tick “0” (PV)
– Value at the beginning of the every tick till 48th tick (-2000), this is
nothing but “PMT”
– What is the interest rate normalized to length of the period? “RATE”
= 8%/12 =0.0067%
– What is type ? “Type = 0” since payment is at the end of the period
• Let’s find out FV using spread sheet
– Answer: 1,12,700

Confidential
What is the PV of this uneven
cash flow stream?
0 1 2 3 4
10%

100 300 300 -50


90.91
247.93
225.39
-34.15
530.08 = PV
Confidential
Net Present Value (NPV)
• “Net Present Value or NPV is the difference between the present
• value of the cash inflows and the present value of the cash outflows.”

Calculating NPV in MS Excel:

=NPV(rate, value1, value2…)

Confidential
Use NPV

• Rate: 10%
• Value 1: 100
• Value 2: 300
• Value 3: 300
• Value 4: -50

Confidential
The Power of Compound Interest

•A 20-year-old student wants to start saving for


retirement. She plans to save Rs 10 a day. Every
day, she puts Rs 10 in her drawer. At the end of
the year, she invests the accumulated savings (Rs
3650) in an online stock account. The stock
account has an expected annual return of 15%.

•How much money will she have when she is 65


years old?
Confidential
Using FV function
Rs 1,09,88,418
More than 1Cr..
Rs 3000 a year getting you more
than Rs 1Cr!!!

Confidential
Frequency of Compounding

Annually, Quarterly, Monthly, daily


etc

Confidential
Effective Interest Rate

• 10% compounded annually is 10%


• If compounded half-yearly is 10.25%
(how?)
• If compounded quarterly is 10.38%
• If compounded monthly is 10.47%
• If compounded daily is 10.52%

Confidential
‘PMT’ - Function

• Used for calculating equal instalments


• Or reversely
– For calculating monthly savings required to
build corpus of amount

Confidential
Ravi Sharma has lent his brother
40,000. The loan is to be paid in
annual equal instalments over the
next five years at an annual
interest rate 8%. What is the
amount that Ravi Sharma will
receive at the end of each year?
Confidential
Let’s solve
• Steps
– Draw time line
– How many ticks ? 0,1,2,3,4,5
– What is the duration of each tick ? “yearly”
– What is the value occurring at the beginning of tick
“0”: Rs 40,000
– What is the value occurring at tick 5 : 0
– What is the normalized interest rate: 8%
– What is the payment occurring at every tick ? Don’t
know and this is what we need to find..

Confidential
EMI Calculation
• Use PMT
– Rate: 8%
– Nper: 5
– PV : 40000
– FV: 0
– Type:0
– Answer: 10,018

Confidential
Summary
• Rule of 72
• Understanding of PV, FV, NPER, RATE, PMT
• Power of compounding
• Solving for money problems
– Draw time line
– Find out no. of ticks (NPER = no.of ticks-1)
– Payment happening at beginning of the tick, at each
tick, at the end of each tick (at the beginning PV, at
each tick PMT, at the end of the tick FV)
– Type
– Interest rate normalized to duration of each period
Confidential
When to use which formula
• Present Value
– To calculate the lump sum amount you need to invest today to meet some goal in
the future
– To calculate the loan outstanding as of today for which you are paying a monthly
installment
• Future Value
– To calculate the total amount that you will receive after some time
• The amount can be invested either lump sum or equal amount every month
– To calculate cost of your living or maintenance expenses at a future date adjusting
for inflation
• Net Present Value
– Today’s Value of uneven cash flows which will be received every year in the future
• PMT
– Equated monthly instalments for loans taken
– Equated monthly investments required to meet a financial goal
Confidential
CAPITAL NEED ANALYSIS

• Capital Need Analysis is truly a modern


process of measuring financial needs and
presenting sound solution. It provides an
organized base of high level professional
counseling.
• CNA System addresses to the problem of
Income erosion due to inflation.
HOW MUCH IS THE NEED
• People at work: While we are working, we
can hope that our income increases to
keep pace with inflation.
• Money at work: When we are no longer
working, adequate capital must be
available and invested in such a way that
the income which it produces will keep
pace with inflation.
HOW CAN INCOME KEEP PACE

• Allow for reinvestment of part of the


income produced. The portion reinvested
should equal the expected annual inflation
rate.
• The remaining flow of income must be
adequate for the surviving family’s needs.

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